##### Table of Contents



United States
Securities and Exchange Commission
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 000-30665
 CNB Financial Services, Inc.
 
  West Virginia
    
    550773918(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)101 S. Washington Street, Berkeley Springs, WV
    
    25411(Address of principal executive offices)
    
    (Zip Code)
 304 258 1520
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
  o þ




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##### 



CNB FINANCIAL SERVICES, INC.
 TABLE OF CONTENTS
 PAGEPART 1: FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Statements of Financial Condition as of September 30, 2008 (Unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Income for the Three and Nine Months ended September 30, 2008 and 2007 (Unaudited)
    
    
    4Consolidated Statements of Changes in Shareholders Equity for the Nine Months Ended September 30, 2008 and 2007 (Unaudited)
    
    
    5Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations for the Three and Nine Months ended September 30, 2008
    
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    26PART II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    27Item 1a. Risk Factors
    
    
    27Item 6. Exhibits and Reports on Form 8-K
    
    
    27SIGNATURES
    
    
    28EX-31.1EX-31.2EX-32.1EX-32.2
    2




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##### Table of Contents



CNB FINANCIAL SERVICES, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Audited)ASSETSCash and due from banks
    
    $
    7,359,566
    
    
    $
    7,791,093Securities available for sale

(at approximate market value)
    
    
    63,578,162
    
    
    
    66,017,231Federal Home Loan Bank stock, at cost
    
    
    2,442,100
    
    
    
    2,623,600Loans and lease receivable, net
    
    
    199,945,918
    
    
    
    202,668,845Accrued interest receivable
    
    
    1,316,154
    
    
    
    1,406,804Foreclosed real estate (held for sale), net
    
    
    523,134
    
    
    
    150,845Premises and equipment, net
    
    
    5,886,933
    
    
    
    6,111,273Deferred income taxes
    
    
    1,705,966
    
    
    
    927,843Cash surrender value of life insurance
    
    
    1,634,612
    
    
    
    1,491,093Intangible assets
    
    
    302,024
    
    
    
    385,661Other assets
    
    
    586,951
    
    
    
    841,156TOTAL ASSETS
    
    $
    285,281,520
    
    
    $
    290,415,444LIABILITIES AND SHAREHOLDERS EQUITYLIABILITIESDeposits:Demand
    
    $
    38,706,535
    
    
    $
    42,690,898Interest-bearing demand
    
    
    38,503,286
    
    
    
    35,278,551Savings
    
    
    22,935,056
    
    
    
    23,462,625Time, $100,000 and over
    
    
    48,869,430
    
    
    
    44,493,979Other time
    
    
    74,480,381
    
    
    
    80,718,661$
    223,494,688
    
    
    $
    226,644,714Accrued interest payable
    
    
    988,618
    
    
    
    1,281,166FHLB borrowings
    
    
    34,350,000
    
    
    
    37,500,000Accrued expenses and other liabilities
    
    
    2,906,412
    
    
    
    2,168,119TOTAL LIABILITIES
    
    $
    261,739,718
    
    
    $
    267,593,999SHAREHOLDERS EQUITYCommon stock, $1 par value; 5,000,000 shares
authorized; 458,048 shares issued at September 30, 2008 and
December 31, 2007 and 450,229 outstanding at
September 30, 2008 and 454,949 outstanding at December 31, 2007
    
    $
    458,048
    
    
    $
    458,048Capital surplus
    
    
    4,163,592
    
    
    
    4,163,592Retained earnings
    
    
    21,217,790
    
    
    
    19,155,244Accumulated other comprehensive income (loss)
    
    
    (1,780,938
    )
    
    
    (747,806
    )$
    24,058,492
    
    
    $
    23,029,078Less treasury stock, at cost, 7,819 shares in 2008 and 3,099
shares in 2007
    
    
    (516,690
    )
    
    
    (207,633
    )TOTAL SHAREHOLDERS EQUITY
    
    $
    23,541,802
    
    
    $
    22,821,445TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    285,281,520
    
    
    $
    290,415,444
  3




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##### Table of Contents



CNB FINANCIAL SERVICES, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007INTEREST INCOMEInterest and fees on loans
    
    $
    3,442,160
    
    
    $
    3,660,461
    
    
    $
    10,503,590
    
    
    $
    10,916,457Interest and dividends on securitiesU.S. Government agencies and
corporations
    
    
    150,103
    
    
    
    363,928
    
    
    
    512,385
    
    
    
    1,021,648Corporate bonds
    
    
    99,964
    
    
    
    
    
    
    
    246,681
    
    
    
    Mortgage backed securities
    
    
    370,876
    
    
    
    207,845
    
    
    
    1,033,890
    
    
    
    413,204State and political subdivisions
    
    
    135,292
    
    
    
    95,851
    
    
    
    378,439
    
    
    
    298,573Dividend income
    
    
    19,641
    
    
    
    17,703
    
    
    
    70,018
    
    
    
    68,403Interest on FHLB deposits
    
    
    460
    
    
    
    1,762
    
    
    
    2,540
    
    
    
    4,727Interest on federal funds sold
    
    
    
    
    
    
    589
    
    
    
    
    
    
    
    36,884$
    4,218,496
    
    
    $
    4,348,139
    
    
    $
    12,747,543
    
    
    $
    12,759,896INTEREST EXPENSEInterest on
interest bearing demand, savings and time deposits
    
    $
    1,319,813
    
    
    $
    1,750,569
    
    
    $
    4,240,298
    
    
    $
    5,140,538Interest on FHLB borrowings
    
    
    211,251
    
    
    
    254,965
    
    
    
    656,037
    
    
    
    549,951$
    1,531,064
    
    
    $
    2,005,534
    
    
    $
    4,896,335
    
    
    $
    5,690,489NET INTEREST INCOME
    
    $
    2,687,432
    
    
    $
    2,342,605
    
    
    $
    7,851,208
    
    
    $
    7,069,407PROVISION FOR LOAN LOSSES
    
    
    160,000
    
    
    
    31,500
    
    
    
    385,000
    
    
    
    129,499NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
    
    $
    2,527,432
    
    
    $
    2,311,105
    
    
    $
    7,466,208
    
    
    $
    6,939,908NONINTEREST INCOMEService charges on deposit accounts
    
    $
    363,041
    
    
    $
    367,138
    
    
    $
    1,037,847
    
    
    $
    1,007,246Other service charges, commissions
and fees
    
    
    202,258
    
    
    
    194,985
    
    
    
    613,690
    
    
    
    578,415Other operating income
    
    
    15,385
    
    
    
    15,170
    
    
    
    52,445
    
    
    
    112,632Income from title company
    
    
    2,312
    
    
    
    6,323
    
    
    
    9,042
    
    
    
    12,162Net gain on sales of loans
    
    
    15,812
    
    
    
    17,162
    
    
    
    51,782
    
    
    
    72,331Net gain (loss) on sales and calls of securities
    
    
    
    
    
    
    (809
    )
    
    
    94,256
    
    
    
    (2,688
    )Net gain (loss) on sale of other real estate owned
    
    
    (10,000
    )
    
    
    
    
    
    
    (10,484
    )
    
    
    Net gain (loss) on disposal of premises and equipment
    
    
    
    
    
    
    116
    
    
    
    
    
    
    
    170$
    588,808
    
    
    $
    600,085
    
    
    $
    1,848,578
    
    
    $
    1,780,268NONINTEREST EXPENSESSalaries
    
    $
    702,662
    
    
    $
    690,588
    
    
    $
    2,155,389
    
    
    $
    2,147,543Employee benefits
    
    
    320,170
    
    
    
    296,893
    
    
    
    1,008,962
    
    
    
    923,880Occupancy of premises
    
    
    129,393
    
    
    
    121,452
    
    
    
    371,259
    
    
    
    384,700Furniture and equipment expense
    
    
    199,651
    
    
    
    225,130
    
    
    
    606,922
    
    
    
    644,496Other operating expenses
    
    
    639,337
    
    
    
    601,106
    
    
    
    1,733,470
    
    
    
    1,705,719$
    1,991,213
    
    
    $
    1,935,169
    
    
    $
    5,876,002
    
    
    $
    5,806,338INCOME BEFORE INCOME TAXES
    
    $
    1,125,027
    
    
    $
    976,021
    
    
    $
    3,438,784
    
    
    $
    2,913,838PROVISION FOR INCOME TAXES
    
    
    372,497
    
    
    
    314,345
    
    
    
    1,137,182
    
    
    
    969,556NET INCOME
    
    $
    752,530
    
    
    $
    661,676
    
    
    $
    2,301,602
    
    
    $
    1,944,282BASIC EARNINGS PER SHARE
    
    $
    1.67
    
    
    $
    1.44
    
    
    $
    5.09
    
    
    $
    4.24
  4




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##### Table of Contents



CNB FINANCIAL SERVICES, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)
 AccumulatedOther
    
    
    TotalCommon
    
    
    Treasury
    
    
    Capital
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersStock
    
    
    Stock
    
    
    Surplus
    
    
    Earnings
    
    
    Income
    
    
    EquityBALANCE, JANUARY 1, 2007
    
    $
    458,048
    
    
    $
    
    
    
    $
    4,163,592
    
    
    $
    17,421,402
    
    
    $
    (1,720,780
    )
    
    $
    20,322,262Comprehensive income:Net income for nine months
ended September 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,944,282
    
    
    
    
    
    
    
    1,944,282Change in unrealized gains
(losses) on securities
available for sale (net of tax of $126,051)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205,662
    
    
    
    205,662Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,149,944Acquisition of treasury stock, at cost,
2,099 shares
    
    
    
    
    
    
    (140,633
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (140,633
    )Cash dividends ($.50 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (229,024
    )
    
    
    
    
    
    
    (229,024
    )BALANCE, SEPTEMBER 30, 2007
    
    $
    458,048
    
    
    $
    (140,633
    )
    
    $
    4,163,592
    
    
    $
    19,136,660
    
    
    $
    (1,515,118
    )
    
    $
    22,102,549BALANCE, JANUARY 1, 2008
    
    $
    458,048
    
    
    $
    (207,633
    )
    
    $
    4,163,592
    
    
    $
    19,155,244
    
    
    $
    (747,806
    )
    
    $
    22,821,445Comprehensive income:Net income for nine months
ended September 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,301,602
    
    
    
    
    
    
    
    2,301,602Change in unrealized gains
(losses) on securities
available for sale (net of tax of $633,210)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,033,132
    )
    
    
    (1,033,132
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,268,470Acquisition of treasury stock, at cost,
4,720 shares
    
    
    
    
    
    
    (309,057
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (309,057
    )Cash dividends ($.53 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (239,056
    )
    
    
    
    
    
    
    (239,056
    )BALANCE, SEPTEMBER 30, 2008
    
    $
    458,048
    
    
    $
    (516,690
    )
    
    $
    4,163,592
    
    
    $
    21,217,790
    
    
    $
    (1,780,938
    )
    
    $
    23,541,802
  5




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##### Table of Contents



CNB FINANCIAL SERVICES, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  Nine months endedSeptember 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    2,301,602
    
    
    $
    1,944,282Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization on premises, equipment and software
    
    
    416,556
    
    
    
    435,384Provision for loan losses
    
    
    385,000
    
    
    
    129,499Deferred income taxes
    
    
    (144,913
    )
    
    
    (33,434
    )Net (gain) loss on sales and calls of securities
    
    
    (94,256
    )
    
    
    2,688Loss on sale of real estate owned
    
    
    10,484
    
    
    
    Net (gain) on disposal of premises and equipment
    
    
    
    
    
    
    (170
    )Net (gain) on loans sold
    
    
    (51,782
    )
    
    
    (72,331
    )Loans originated for sale
    
    
    (4,239,250
    )
    
    
    (4,212,550
    )Proceeds from loans sold
    
    
    4,291,032
    
    
    
    4,284,882(Increase) decrease in accrued interest receivable
    
    
    90,650
    
    
    
    (79,712
    )Decrease in other assets
    
    
    350,324
    
    
    
    138,545Gain on sale of stock
    
    
    
    
    
    
    (59,369
    )Increase (decrease) in accrued interest payable
    
    
    (292,548
    )
    
    
    336,214(Increase) in cash surrender value on life insurance in excess
of premiums paid
    
    
    (85,085
    )
    
    
    (83,321
    )Increase in accrued expenses and other liabilities
    
    
    738,293
    
    
    
    18,912Amortization of deferred loan (fees) cost
    
    
    45,249
    
    
    
    64,955Amortization (accretion) of premium and discount on investments
    
    
    7,442
    
    
    
    17,653NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    $
    3,728,798
    
    
    $
    2,832,127CASH FLOWS FROM INVESTING ACTIVITIES:Net decrease in loans, not originated for sale
    
    $
    1,771,981
    
    
    $
    3,217,122Proceeds from sales of securities
    
    
    2,803,399
    
    
    
    3,796,972Proceeds from maturities, repayments and calls of securities
    
    
    28,073,757
    
    
    
    2,406,371Purchases of securities
    
    
    (30,015,024
    )
    
    
    (16,609,965
    )Purchases of Federal Home Loan Bank stock
    
    
    (1,459,000
    )
    
    
    (1,740,000
    )Redemptions of Federal Home Loan Bank stock
    
    
    1,640,500
    
    
    
    1,402,900Purchases of premises, equipment and software
    
    
    (207,289
    )
    
    
    (380,996
    )Proceeds from sales of premises and equipment
    
    
    
    
    
    
    1,215Proceeds from sale of stock
    
    
    
    
    
    
    59,369Proceeds from sale of real estate owned
    
    
    150,361
    
    
    
    Costs to acquire foreclosed real estate
    
    
    (12,437
    )
    
    
    (5,188
    )Net decrease in federal funds sold
    
    
    
    
    
    
    9,000Premiums paid on life insurance
    
    
    (58,434
    )
    
    
    (58,434
    )NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
    
    $
    2,687,814
    
    
    $
    (7,901,634
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net (decrease) in demand and savings deposits
    
    $
    (1,287,197
    )
    
    $
    (21,534,173
    )Net increase (decrease) in time deposits
    
    
    (1,862,829
    )
    
    
    17,748,652Net increase (decrease) in FHLB borrowings
    
    
    (3,150,000
    )
    
    
    8,800,000Purchase of treasury stock
    
    
    (309,057
    )
    
    
    (140,633
    )Cash dividends paid
    
    
    (239,056
    )
    
    
    (229,024
    )NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    
    $
    (6,848,139
    )
    
    $
    4,644,822NET (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    $
    (431,527
    )
    
    $
    (424,685
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    7,791,093
    
    
    
    7,358,773CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    7,359,566
    
    
    $
    6,934,088SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the period:Interest
    
    $
    5,188,883
    
    
    $
    5,354,275Income taxes
    
    $
    1,188,550
    
    
    $
    780,500Net transfer to foreclosed real estate, held for sale
from loans receivable
    
    $
    562,071
    
    
    $
    172,893
  6




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##### Table of Contents



CNB FINANCIAL SERVICES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
      9/30/2008
    
    9/30/2007Quarter ending
    
    
    450,619
    
    
    
    457,957Year to date ending
    
    
    452,374
    
    
    
    458,017
 7




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##### Table of Contents



CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
    WeightedSeptember 30, 2008
    
    
    AverageGross
    
    
    Gross
    
    
    Estimated
    
    
    TaxAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    EquivalentCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    YieldAvailable for sale:U.S. Government agencies
and corporationsAfter 1 but within 5 years
    
    $
    3,391,164
    
    
    $
    1,142
    
    
    $
    13,659
    
    
    $
    3,378,647
    
    
    
    3.85
    %After 5 but within 10 years
    
    
    10,391,720
    
    
    
    21,085
    
    
    
    209,451
    
    
    
    10,203,354
    
    
    
    4.52$
    13,782,884
    
    
    $
    22,227
    
    
    $
    223,110
    
    
    $
    13,582,001
    
    
    
    4.36
    %Corporate BondsAfter 1 but within 5 years
    
    $
    1,733,590
    
    
    $
    
    
    
    $
    216,463
    
    
    $
    1,517,127
    
    
    
    5.81
    %After 5 but within 10 years
    
    
    5,477,214
    
    
    
    
    
    
    
    828,212
    
    
    
    4,649,002
    
    
    
    5.47$
    7,210,804
    
    
    $
    
    
    
    $
    1,044,675
    
    
    
    6,166,129
    
    
    
    5.55
    %States and political subdivisionsWithin one year
    
    $
    1,037,687
    
    
    $
    1,840
    
    
    $
    
    
    
    $
    1,039,527
    
    
    
    2.80
    %After 1 but within 5 years
    
    
    3,840,555
    
    
    
    24,527
    
    
    
    7,813
    
    
    
    3,857,269
    
    
    
    3.39After 5 but within 10 years
    
    
    10,715,085
    
    
    
    10,581
    
    
    
    245,825
    
    
    
    10,479,841
    
    
    
    3.55$
    15,593,327
    
    
    $
    36,948
    
    
    $
    253,638
    
    
    $
    15,376,637
    
    
    
    3.46
    %Mortgage backed securities:Government issued or guaranteed
    
    $
    17,770,947
    
    
    $
    185,046
    
    
    $
    56,109
    
    
    $
    17,899,884
    
    
    
    5.36
    %Collateralized mortgage obligations:Government issued or guaranteed
    
    $
    9,088,437
    
    
    $
    87,297
    
    
    $
    106,630
    
    
    $
    9,069,104
    
    
    
    5.15
    %Privately issued
    
    
    1,814,722
    
    
    
    
    
    
    
    330,315
    
    
    
    1,484,407
    
    
    
    5.85$
    10,903,159
    
    
    $
    87,297
    
    
    $
    436,945
    
    
    $
    10,553,511
    
    
    
    5.27
    %Total securities available for sale
    
    $
    65,261,121
    
    
    $
    331,518
    
    
    $
    2,014,477
    
    
    $
    63,578,162
    
    
    
    4.70
    %Restricted:Federal Home Loan Bank stock
    
    $
    2,442,100
    
    
    $
    
    
    
    $
    
    
    
    
    2,442,100
    
    
    
    3.50
    %
 8




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CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
  WeightedDecember 31, 2007
    
    
    AverageGross
    
    
    Gross
    
    
    Estimated
    
    
    TaxAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    EquivalentCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    YieldAvailable for sale:U.S. Government agencies
and corporationsWithin one year
    
    $
    13,892,949
    
    
    $
    21,851
    
    
    $
    4,802
    
    
    $
    13,909,998
    
    
    
    4.58
    %After 1 but within 5 years
    
    
    15,236,652
    
    
    
    33,176
    
    
    
    31,057
    
    
    
    15,238,771
    
    
    
    4.09After 5 but within 10 years
    
    
    1,987,371
    
    
    
    33,929
    
    
    
    
    
    
    
    2,021,300
    
    
    
    5.86$
    31,116,972
    
    
    $
    88,956
    
    
    $
    35,859
    
    
    $
    31,170,069
    
    
    
    4.42
    %States and political subdivisionsWithin one year
    
    $
    551,482
    
    
    $
    311
    
    
    $
    1,711
    
    
    $
    550,082
    
    
    
    2.85
    %After 1 but within 5 years
    
    
    2,064,702
    
    
    
    24,344
    
    
    
    22,266
    
    
    
    2,066,780
    
    
    
    3.40After 5 but within 10 years
    
    
    8,990,636
    
    
    
    2,330
    
    
    
    132,262
    
    
    
    8,860,704
    
    
    
    3.55$
    11,606,820
    
    
    $
    26,985
    
    
    $
    156,239
    
    
    $
    11,477,566
    
    
    
    3.49
    %Mortgage backed securities:Government issued or guaranteed
    
    $
    14,149,889
    
    
    $
    86,271
    
    
    $
    97,135
    
    
    $
    14,139,025
    
    
    
    5.37
    %Collateralized mortgage obligations:Government issued or guaranteed
    
    $
    7,236,286
    
    
    $
    80,871
    
    
    $
    7,907
    
    
    $
    7,309,250
    
    
    
    5.54
    %Privately issued
    
    
    1,923,882
    
    
    
    12,116
    
    
    
    14,677
    
    
    
    1,921,321
    
    
    
    5.92$
    9,160,168
    
    
    $
    92,987
    
    
    $
    22,584
    
    
    $
    9,230,571
    
    
    
    5.62
    %Total securities available for sale
    
    $
    66,033,849
    
    
    $
    295,199
    
    
    $
    311,817
    
    
    $
    66,017,231
    
    
    
    4.63
    %Restricted:Federal Home Loan Bank stock
    
    $
    2,623,600
    
    
    $
    
    
    
    $
    
    
    
    $
    2,623,600
    
    
    
    6.00
    %
   9




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##### Table of Contents



CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
    September 30, 2008Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Government agencies
and corporations
    
    $
    10,082,080
    
    
    $
    223,111
    
    
    $
    
    
    
    $
    
    
    
    $
    10,082,080
    
    
    $
    223,111Corporate bonds
    
    
    6,166,130
    
    
    
    1,044,675
    
    
    
    
    
    
    
    
    
    
    
    6,166,130
    
    
    
    1,044,675State and political subdivisions
    
    
    8,285,713
    
    
    
    249,748
    
    
    
    215,545
    
    
    
    3,889
    
    
    
    8,501,258
    
    
    
    253,637Mortgage backed securities:Government issued or guaranteed
    
    
    6,317,344
    
    
    
    43,469
    
    
    
    503,094
    
    
    
    12,640
    
    
    
    6,820,438
    
    
    
    56,109Collateralized mortgage obligations:Government issued or guaranteed
    
    
    3,977,289
    
    
    
    106,630
    
    
    
    
    
    
    
    
    
    
    
    3,977,289
    
    
    
    106,630Privately issued
    
    
    1,484,407
    
    
    
    330,315
    
    
    
    
    
    
    
    
    
    
    
    1,484,407
    
    
    
    330,315Total temporarily impaired
securities
    
    $
    36,312,963
    
    
    $
    1,997,948
    
    
    $
    718,639
    
    
    $
    16,529
    
    
    $
    37,031,602
    
    
    $
    2,014,477
 December 31, 2007Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Government agencies
and corporations
    
    $
    6,999,300
    
    
    $
    700
    
    
    $
    12,876,348
    
    
    $
    35,159
    
    
    $
    19,875,648
    
    
    $
    35,859State and political subdivisions
    
    
    2,067,956
    
    
    
    24,596
    
    
    
    8,102,090
    
    
    
    131,643
    
    
    
    10,170,046
    
    
    
    156,239Mortgage backed securities:Government issued or guaranteed
    
    
    846,880
    
    
    
    4
    
    
    
    5,448,594
    
    
    
    97,131
    
    
    
    6,295,474
    
    
    
    97,135Collateralized mortgage obligations:Government issued or guaranteed
    
    
    1,548,343
    
    
    
    7,907
    
    
    
    
    
    
    
    
    
    
    
    1,548,343
    
    
    
    7,907Privately issued
    
    
    467,086
    
    
    
    14,677
    
    
    
    
    
    
    
    
    
    
    
    467,086
    
    
    
    14,677Total temporarily impaired
securities
    
    $
    11,929,565
    
    
    $
    47,884
    
    
    $
    26,427,032
    
    
    $
    263,933
    
    
    $
    38,356,597
    
    
    $
    311,817
 10




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##### Table of Contents



CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
      September 30,
    
    
    December 31,2008
    
    
    2007Loans:Real estate
    
    $
    137,904,738
    
    
    $
    143,012,227Commercial real estate
    
    
    39,184,143
    
    
    
    37,587,676Consumer
    
    
    16,517,531
    
    
    
    15,544,183Commercial
    
    
    7,843,102
    
    
    
    8,179,019Overdrafts
    
    
    392,072
    
    
    
    104,240$
    201,841,586
    
    
    $
    204,427,345Leases
    
    
    106,632
    
    
    
    112,838$
    201,948,218
    
    
    $
    204,540,183Net deferred loan fees, costs,
premiums and discounts
    
    
    289,297
    
    
    
    273,123Allowance for loan losses
    
    
    (2,291,597
    )
    
    
    (2,144,461
    )$
    199,945,918
    
    
    $
    202,668,845
  September 30,
    
    
    December 31,2008
    
    
    2007
    
    
    2007Balance, Beginning
    
    $
    2,144,461
    
    
    $
    2,131,523
    
    
    $
    2,131,523Provision charged to
operations
    
    
    385,000
    
    
    
    129,499
    
    
    
    168,999Recoveries
    
    
    120,032
    
    
    
    161,574
    
    
    
    183,281Loans charged off
    
    
    (357,896
    )
    
    
    (261,329
    )
    
    
    (339,342
    )Balance, Ending
    
    $
    2,291,597
    
    
    $
    2,161,267
    
    
    $
    2,144,461
 11




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CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
   September 30,
    
    
    December 31,2008
    
    
    2007
    
    
    2007(in thousands)Impaired loans without a valuation allowance
    
    $
    
    
    
    $
    
    
    
    $
    Impaired loans with a valuation allowance (1)
    
    
    1,935,974
    
    
    
    
    
    
    
    1,410,100Total impaired loans
    
    $
    1,935,974
    
    
    $
    
    
    
    $
    1,410,100Valuation allowance related to impaired loans
    
    $
    453,788
    
    
    $
    
    
    
    $
    254,680
 
 (1)
    
    Some of these loans have government agency guarantees reducing the banks exposure by
$66,431 for
September 30, 2008 and $261,592 for December 31, 2007 September 30,
    
    
    December 31,2008
    
    
    2007
    
    
    2007(in thousands)Average investment in impaired loans
    
    $
    1,673,037
    
    
    $
    
    
    
    $
    705,050Interest income recognized on impaired loans
    
    $
    50,693
    
    
    $
    
    
    
    $
    85,185Interest income recognized on a cash basis on
impaired loans
    
    $
    50,693
    
    
    $
    
    
    
    $
    85,185
  September 30,
    
    
    December 31,2008
    
    
    2007
    
    
    2007Foreclosed real estate (other real estate owned)
    
    $
    523,134
    
    
    $
    178,081
    
    
    $
    150,845Impaired loans, not on nonaccrual
    
    
    692,871
    
    
    
    
    
    
    
    847,852Nonaccrual loans, impaired (1)
    
    
    1,243,103
    
    
    
    
    
    
    
    562,248Nonaccrual loans, not impaired
    
    
    779,254
    
    
    
    773,275
    
    
    
    551,904Loans past due 90 days or more still accruing interest
    
    
    
    
    
    
    
    
    
    
    Total non-performing assets
    
    $
    3,238,362
    
    
    $
    951,356
    
    
    $
    2,112,849
 
 (1)
    
    Some of these loans have government agency guarantees reducing the banks exposure by $66,431
at September 30, 2008 and $261,592 at December 31, 2007. 12




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##### Table of Contents



CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
   Time Deposits
    
    
    All Time$100,000 and Over
    
    
    DepositsWithin 3 months
    
    $
    5,460,269
    
    
    $
    17,308,6133 months thru 6 months
    
    
    1,445,552
    
    
    
    6,535,7576 months thru 12 months
    
    
    3,352,582
    
    
    
    9,437,226Over 12 months
    
    
    38,611,027
    
    
    
    90,068,215$
    48,869,430
    
    
    $
    123,349,811
  September 30,
    
    December 31,2008
    
    2007
    
    2007Federal Home Loan Bank advances
    
    $
    34,350,000
    
    
    $
    27,300,000
    
    
    $
    37,500,000
     September 30,2008
    
    
    2007Service cost
    
    $
    181,731
    
    
    $
    185,866Interest cost
    
    
    230,511
    
    
    
    200,433Expected return on plan assets
    
    
    (226,971
    )
    
    
    (200,365
    )Amortization of prior service costs
    
    
    9,258
    
    
    
    9,257Recognized net actuarial loss
    
    
    38,927
    
    
    
    59,561Net periodic plan cost
    
    $
    233,455
    
    
    $
    254,752
  13




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CNB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
       14




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
            ,
 15




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16




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TABLE 1. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
 SEPTEMBER 30, 2008
    
    
    SEPTEMBER 30, 2007QTR
    
    
    
    
    
    
    
    
    
    
    QTRAVERAGE
    
    
    QTR
    
    
    YIELD/
    
    
    AVERAGE
    
    
    QTR
    
    
    YIELD/BALANCE
    
    
    INTEREST
    
    

RATE (4)
    
    
    BALANCE
    
    
    INTEREST
    
    

RATE (4)(IN THOUSANDS OF DOLLARS)Interest earning assets:Federal funds sold
    
    $
    
    
    
    $
    
    
    
    
    1.94
    %
    
    $
    118
    
    
    $
    1
    
    
    
    5.05
    %Securities:Taxable
    
    
    50,457
    
    
    
    644
    
    
    
    5.11
    
    
    
    48,661
    
    
    
    594
    
    
    
    4.88Tax-exempt (1)
    
    
    15,365
    
    
    
    133
    
    
    
    5.25
    
    
    
    10,574
    
    
    
    93
    
    
    
    5.33Loans (net of unearned interest) (2)(5)(6)
    
    
    200,991
    
    
    
    3,384
    
    
    
    6.73
    
    
    
    203,199
    
    
    
    3,604
    
    
    
    7.09Total interest earning assets (1)
    
    $
    266,813
    
    
    $
    4,161
    
    
    
    6.24
    %
    
    $
    262,552
    
    
    $
    4,292
    
    
    
    6.54
    %Nonearning assets:Cash and due from banks
    
    $
    6,837
    
    
    
    
    
    
    
    
    
    
    $
    7,269Bank premises and equipment, net
    
    
    5,943
    
    
    
    
    
    
    
    
    
    
    
    6,250Other assets
    
    
    5,841
    
    
    
    
    
    
    
    
    
    
    
    5,589Allowance for loan losses
    
    
    (2,315
    )
    
    
    
    
    
    
    
    
    
    
    (2,178
    )Total assets
    
    $
    283,119
    
    
    
    
    
    
    
    
    
    
    $
    279,482Interest bearing liabilities:Savings deposits
    
    $
    23,636
    
    
    $
    18
    
    
    
    0.30
    %
    
    $
    25,112
    
    
    $
    32
    
    
    
    0.51
    %Time deposits
    
    
    123,071
    
    
    
    1,230
    
    
    
    4.00
    
    
    
    128,235
    
    
    
    1,513
    
    
    
    4.72NOW accounts
    
    
    21,806
    
    
    
    44
    
    
    
    0.81
    
    
    
    24,911
    
    
    
    130
    
    
    
    2.09Money market accounts
    
    
    13,319
    
    
    
    28
    
    
    
    0.84
    
    
    
    13,329
    
    
    
    76
    
    
    
    2.28Borrowings
    
    
    33,582
    
    
    
    211
    
    
    
    2.51
    
    
    
    19,539
    
    
    
    255
    
    
    
    5.22Total interest bearing liabilities
    
    $
    215,414
    
    
    $
    1,531
    
    
    
    2.84
    %
    
    $
    211,126
    
    
    $
    2,006
    
    
    
    3.80
    %Noninterest bearing liabilities:Demand deposits
    
    $
    40,638
    
    
    
    
    
    
    
    
    
    
    $
    42,912Other liabilities
    
    
    3,918
    
    
    
    
    
    
    
    
    
    
    
    4,412Shareholders equity
    
    
    23,149
    
    
    
    
    
    
    
    
    
    
    
    21,032Total liabilities and
shareholders equity
    
    $
    283,119
    
    
    
    
    
    
    
    
    
    
    $
    279,482Net interest income (1)
    
    
    
    
    
    $
    2,630
    
    
    
    
    
    
    
    
    
    
    $
    2,286Net interest spread (3)
    
    
    
    
    
    
    
    
    
    
    3.40
    %
    
    
    
    
    
    
    
    
    
    
    2.74
    %Net interest
income to average interest earning assets (1)
    
    
    
    
    
    
    
    
    
    
    3.94
    %
    
    
    
    
    
    
    
    
    
    
    3.48
    %
 
 (1)
    
    Yields are expressed on a tax equivalent basis using a 34% tax rate.(2)
    
    For the purpose of these computations, nonaccruing loans are included in the amounts of average
loans outstanding.(3)
    
    Net interest spread is the difference between the weighted average yield on interest-earning
assets and the weighted
average cost of interest-bearing liabilities.(4)
    
    Yields/Rates are expressed on an annualized basis.(5)
    
    Interest income on loans excludes fees of $57,772 in 2008 and $56,223 in 2007.(6)
    
    Interest income on loans includes fees of $14,630 in 2008 and $20,422 in 2007 from the Business
Manager Program,
student loans and lease receivables. 17




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TABLE 2. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
 SEPTEMBER 30, 2008
    
    
    SEPTEMBER 30, 2007YTD
    
    
    
    
    
    
    
    
    
    
    YTDAVERAGE
    
    
    YTD
    
    
    YIELD/
    
    
    AVERAGE
    
    
    YTD
    
    
    YIELD/BALANCE
    
    
    INTEREST
    
    

RATE (4)
    
    
    BALANCE
    
    
    INTEREST
    
    

RATE (4)(IN THOUSANDS OF DOLLARS)Interest earning assets:Federal funds sold
    
    $
    
    
    
    $
    
    
    
    
    2.40
    %
    
    $
    938
    
    
    $
    37
    
    
    
    5.13
    %Securities:Taxable
    
    
    49,832
    
    
    
    1,874
    
    
    
    5.01
    
    
    
    42,608
    
    
    
    1,518
    
    
    
    4.75Tax-exempt (1)
    
    
    14,458
    
    
    
    370
    
    
    
    5.17
    
    
    
    11,110
    
    
    
    289
    
    
    
    5.26Loans (net of unearned interest) (2)(5)(6)
    
    
    202,707
    
    
    
    10,349
    
    
    
    6.81
    
    
    
    204,249
    
    
    
    10,739
    
    
    
    7.01Total interest earning assets (1)
    
    $
    266,997
    
    
    $
    12,593
    
    
    
    6.29
    %
    
    $
    258,905
    
    
    $
    12,583
    
    
    
    6.48
    %Nonearning assets:Cash and due from banks
    
    $
    6,753
    
    
    
    
    
    
    
    
    
    
    $
    8,047Bank premises and equipment, net
    
    
    6,004
    
    
    
    
    
    
    
    
    
    
    
    6,274Other assets
    
    
    5,233
    
    
    
    
    
    
    
    
    
    
    
    5,328Allowance for loan losses
    
    
    (2,252
    )
    
    
    
    
    
    
    
    
    
    
    (2,177
    )Total assets
    
    $
    282,735
    
    
    
    
    
    
    
    
    
    
    $
    276,377Interest bearing liabilities:Savings deposits
    
    $
    23,671
    
    
    $
    53
    
    
    
    0.30
    %
    
    $
    25,921
    
    
    $
    96
    
    
    
    0.49
    %Time deposits
    
    
    125,088
    
    
    
    3,931
    
    
    
    4.19
    
    
    
    121,252
    
    
    
    4,149
    
    
    
    4.56NOW accounts
    
    
    22,145
    
    
    
    157
    
    
    
    0.95
    
    
    
    34,269
    
    
    
    678
    
    
    
    2.64Money market accounts
    
    
    12,333
    
    
    
    99
    
    
    
    1.07
    
    
    
    13,221
    
    
    
    217
    
    
    
    2.19Borrowings
    
    
    30,829
    
    
    
    656
    
    
    
    2.84
    
    
    
    13,780
    
    
    
    550
    
    
    
    5.32Total interest bearing liabilities
    
    $
    214,066
    
    
    $
    4,896
    
    
    
    3.05
    %
    
    $
    208,443
    
    
    $
    5,690
    
    
    
    3.64
    %Noninterest bearing liabilities:Demand deposits
    
    $
    41,454
    
    
    
    
    
    
    
    
    
    
    $
    42,784Other liabilities
    
    
    3,957
    
    
    
    
    
    
    
    
    
    
    
    4,350Shareholders equity
    
    
    23,258
    
    
    
    
    
    
    
    
    
    
    
    20,800Total liabilities and
shareholders equity
    
    $
    282,735
    
    
    
    
    
    
    
    
    
    
    $
    276,377Net interest income (1)
    
    
    
    
    
    $
    7,697
    
    
    
    
    
    
    
    
    
    
    $
    6,893Net interest spread (3)
    
    
    
    
    
    
    
    
    
    
    3.24
    %
    
    
    
    
    
    
    
    
    
    
    2.84
    %Net interest income to average interest earning assets (1)
    
    
    
    
    
    
    
    
    
    
    3.84
    %
    
    
    
    
    
    
    
    
    
    
    3.55
    %
 
 (1)
    
    Yields are expressed on a tax equivalent basis using a 34% tax rate.(2)
    
    For the purpose of these computations, nonaccruing loans are included in the amounts of average
loans outstanding.(3)
    
    Net interest spread is the difference between the weighted average yield on interest-earning
assets and the weighted
average cost of interest-bearing liabilities.(4)
    
    Yields/Rates are expressed on an annualized basis.(5)
    
    Interest income on loans excludes fees of $154,893 in 2008 and $177,002 in 2007.(6)
    
    Interest income on loans includes fees of $53,050 in 2008 and $65,438 in 2007 from the Business
Manager Program,
student loans and lease receivables. 18




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20




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September 30,
    
    
    December 31,2008
    
    
    2007
    
    
    2007Impaired loans, not on nonaccrual
    
    
    692,871
    
    
    
    
    
    
    
    847,852Nonaccrual loans, impaired (1)
    
    
    1,243,103
    
    
    
    
    
    
    
    562,248Nonaccrual loans, not impaired
    
    
    779,254
    
    
    
    773,275
    
    
    
    551,904Loans past due 90 days or more still accruing interest
    
    
    
    
    
    
    
    
    
    
    Total non-performing loans
    
    $
    2,715,228
    
    
    $
    773,275
    
    
    $
    1,962,004Foreclosed real estate (other real estate owned)
    
    $
    523,134
    
    
    $
    178,081
    
    
    $
    150,845Total nonperforming assets
    
    $
    3,238,362
    
    
    $
    951,356
    
    
    $
    2,112,849Nonperforming loans/Total loans
    
    
    1.36
    %
    
    
    0.39
    %
    
    
    0.97
    %Nonperforming assets/Total assets
    
    
    1.14
    %
    
    
    0.34
    %
    
    
    0.73
    %Allowance for loan losses/Total loans
    
    
    1.15
    %
    
    
    1.09
    %
    
    
    1.05
    %
 
 (1)
    
    Some of these loans have government agency guarantees reducing the banks exposure by $66,431
at September 30, 2008 and $261,592 at December 31, 2007.    21




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September 30,
    
    
    December 31,2008
    
    
    2007Percent of
    
    
    
    
    
    
    Percent ofLoans in Each
    
    
    
    
    
    
    Loans in EachCategory to
    
    
    
    
    
    
    Category toIn thousands
    
    Amount
    
    
    Total Loans
    
    
    Amount
    
    
    Total LoansCommercial, financial
and agriculture
    
    $
    927
    
    
    
    23
    %
    
    $
    886
    
    
    
    22
    %Real estate  residential
mortgage
    
    
    458
    
    
    
    68
    
    
    
    479
    
    
    
    69Installment and other
    
    
    402
    
    
    
    8
    
    
    
    244
    
    
    
    8Impaired loans
    
    
    454
    
    
    
    1
    
    
    
    255
    
    
    
    1Unallocated
    
    
    51
    
    
    
    N/A
    
    
    
    280
    
    
    
    N/ATotal
    
    $
    2,292
    
    
    
    100
    %
    
    $
    2,144
    
    
    
    100
    %
      22




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Components
    
    Actual
    
    Requiredof Capital
    
    Ratio
    
    RatioTier 1 Capital
    
    $
    23,974
    
    
    
    8.5
    %
    
    
    4.0
    %Total Risk Based Capital
    
    $
    26,178
    
    
    
    14.9
    %
    
    
    8.0
    %
   
    
    Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
    
    Level 2 inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that areobservable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
    
    Level 3 inputs to the valuation methodology are unobservable and significant to the fair
value measurement.
  Securities
    Loans held for sale
  Impaired loans
  23




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Other Real Estate Owned
       Accounting for Servicing of Financial Assets, The Fair Value Option for Financial
Assets and Financial Liabilities,
  Share-Based Payment
 24




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   25




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ITEM 4. CONTROLS AND PROCEDURES
   26




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The global financial crisis may have an adverse affect on our Bank, business and results of
operations.
    
      27




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CNB Financial Services, Inc.(Registrant)Date
    
    November 14, 2008
    
    /s/ Thomas F. RokiskyDate
    
    November 14, 2008
    
    /s/ Rebecca S. Stotler
 28